Even if you know everything in the U.S. Treasury Gold Report, you can still lose money in the gold market.
If you want to retire on the Aruba gold coast, you should think twice before buying gold.
In one of the most famous police chief retirement speeches bandied around the internet, the veteran officer joked that he was looking for beaches in Florida where gold coins are found with metal detectors. With the price of gold so high these days, people seem to be rummaging through their attics to find buried treasures such as an old sapphire gold ear cuff, a pair of vertical 14k gold initial rings, or maybe a valuable Joe Montana retirement commemorative coin. But are these trinkets really worth anything? Is gold a good deal now?
Just because people have made money recently, this does not mean that gold is good for the long term.
You might want to own gold as part of a diversification strategy. As a financial advisor, I talk about spreading out risk on a daily basis. But there are many asset classes that you can use to diversify (i.e., stocks, bonds, commodities, real estate, art, etc.), so why should you buy gold? The answer may be that you should not. Perhaps it has already had its run up. If you’re like the police chief who is planning on walking beaches in Florida where gold coins are found with metal detectors, then perhaps you’ll make some easy money. But if you are going to take your cash (or sell some other investment to raise the cash) and buy a few ounces of the yellow metal, consider the following:
Gold offers no income. Unless you own a gold mine trommel (the machine that is used in gold refining, also referred to a “gold helix trommel”) which could help you make some money on a regular basis, you get no dividends or interest from gold. Compare that to stocks and bonds, where the companies in which you invest will often pay you some cash based on their earnings.
Gold has no intrinsic value. People often think that gold is the currency of the last resort; but is it really? When the Iraqi government collapsed, did people start negotiating deals in bits of gold? The metal’s value is only a reflection of what people are willing to pay. Recently, folks have gotten all excited about it, and rather than turning to their financial planner or even to the Yahoo financial retirement calculator to figure out something about their financial future, they just threw the dice on buying gold. They hoped that tomorrow, someone would be willing to pay more for it. But it’s hard to explain what would make it more valuable in the future. Compare this to buying company stock, where you hope that the owners will work to build the company and create more value.
Gold has already gone up a lot. If you buy gold now, you should see yourself as a speculator, not an investor. Perhaps you track Canadian 1967 commemorative gold coin prices because you happen to like the look of the coin. That’s fine. You should buy it as artwork that you love, but not because you are certain it will appreciate in value. Nothing is certain, and past performance is no guarantee of future returns.
Buyer beware. Before you start trying to accumulate a bunch of mens antique gold rings or breaking off the watch buckle solid gold piece from your grandfather’s old timepiece, think very carefully about whether you are diversifying or just getting swept away in the gold rush.